* Liberty Media cuts stake to 1.6 percent from 16.6 percent
* Barnes & Noble shares fall 14.6 percent
* Liberty Media CEO Greg Maffei to leave Barnes & Noble board
(Adds analyst comments, bylines)
April 3 (Reuters) - John Malone's Liberty Media Corp said on Thursday it has sold almost all of its stake in Barnes & Noble Inc, ending a nearly three-year bet that the struggling retailer would emerge as a dominant seller of e-books.
The sale of Liberty's shares, expected to close April 8, means the departure of one of the bookseller's biggest investors, as well as the exit of Liberty Media Chief Executive Greg Maffei, a respected dealmaker, from Barnes & Noble's board.
Barnes & Noble shares were down 14.6 percent to $18.89 in late morning trading even as it and Liberty tried to put the best possible face on the sale, saying it would give the retailer greater flexibility to pursue future deals.
The divestment comes after a rally that lifted Barnes & Noble's shares 48 percent in 2014 through Wednesday as its core retail business has shown surprising robustness and it has scaled back the money-losing Nook e-reader business.
"We worry that losing such a qualified board member in Greg Maffei, and losing the strategic insights of Liberty could depress near-term confidence in the stock," said Janney Capital Markets analyst David Strasser in a research note.
Liberty is selling 90 percent of its Barnes & Noble stake, obtained in 2011 after investing $204 million in the largest U.S. bookstore chain, lured by its then-promising Nook devices.
Liberty's preferred stock was convertible into about 12 million shares, or about 16.6 percent of shares, and offered a dividend rate of 7.75 percent annually to be paid out quarterly.
Prior to that deal, Liberty had been in talks to buy the whole company for $17 per share, or about $1 billion. At that time, Liberty had praised the potential of the Nook.
Instead, the Nook business has faltered, with sales down 50 percent last quarter as the company did not launch a new device for the 2013 holiday season.
Losses from the Nook have run to hundreds of millions of dollars as it tried to keep up with deep-pocketed technology rivals Amazon.com Inc and Apple Inc. Barnes & Noble will continue to develop Nook products, but only with a partner yet to be named.
Barnes & Noble's retail business has shown much more stability in terms of sales, and profits at its bookstores and college campus stores are up.
Through its preferred shares stake, Liberty had the right to block any asset sales, a right seen as a potential impediment last year when Chairman Leonard Riggio considered taking the Barnes & Noble's retail business private. Riggio, the top shareholder, later decided not to move forward with that plan.
In a statement, Riggio said Liberty's divestment gave Barnes & Noble "greater flexibility" to pursue strategic options.
In 2012, Barnes & Noble created a Nook Media Unit. Microsoft Corp has a 18 percent stake in the division, while Pearson LLC has 5 percent.
Barnes & Noble CEO Michael Huseby told Reuters in February the company could still sell or spin off Nook Media.
With the sale, Liberty loses the right to name two members to Barnes & Noble's board, though a Liberty senior vice president, Mark Carleton, will stay on.
Liberty is keeping just under 2 percent of its Barnes & Noble stake.
Liberty Media has tweaked its portfolio in the past year, buying up 27 percent of cable operator Charter Communications and also taking control of Sirius XM.
Liberty, famous for complicated stock structures, said in March it plans to divvy up its cable and media assets into two new stocks, Liberty Broadband Group and Liberty Media Group. The remaining Barnes & Noble stake will be part of the Liberty Media Group's tracking stock.
(Reporting by Phil Wahba in New York and Siddharth Cavale in Bangalore, additional reporting by Liana B. Baker; Editing by Rodney Joyce and Nick Zieminski)